Several questions

If an investor is going to participate in the commodities market by buying a contract, he/she should do which of the following?

I. Realize that making a profit is relatively easy.

II. Be mentally prepared for an enormous loss.

III. Be financially able to meet repeated margin calls.

IV. Spend all of their available cash on margin deposits.

A) I, II and III only

B) II and III only

C) II and IV only

D) II, III and IV only

2. Joseph bought a contract for future delivery of 5000 bushels of corn at $2.80 per bushel and sold a later dated contract at $2.90 a bushel. A month later, corn prices were rising and Joseph sold his long contract for $3.10 per bushel and covered his short by purchasing the same contract for $3.25 per bushel. Ignoring trading costs, Joseph

A) broke even.

B) made $500.

C) lost $750.

D) made $750.

3. Hedging in the commodities market is a strategy primarily used by

A) individual investors with high risk tolerance levels for commodities.

B) institutional investors on behalf of their conservative investors.

C) by producers and processors of commodities.

D) investors looking for short-term capital gains.

4. One of the advantages of speculating with stock-index futures is that they eliminate the need to predict the future course of the stock market.

A) TRUE

B) FALSE

5. The owner of a currency future has a claim on a specified amount of a specified foreign currency.

A) TRUE

B) FALSE

6. The seller of a stock-index future is obligated to deliver a specified number of shares of the underlying security.

A) TRUE

B) FALSE

7. Which one of the following statements concerning financial futures is correct?

A) Except for short-term securities, interest rate futures are quoted based on a percentage of the par value of the underlying debt security.

B) Stock-index futures are priced at an amount equal to the value of the index.

C) Foreign currency futures are based on 100,000 units of the foreign currency.

D) An investor who is long on a financial future losses money when the value of the future rises.

8. The value of an interest-rate futures contract will go up when

A) interest rates go up.

B) interest rates go down.

C) gold prices rise.

D) gold prices fall.

9. An investor who is worried about the impact of rising interest rates on the value of a large bond portfolio can reduce risk by

A) selling Treasury note or bond futures.

B) buying Treasury note or bond futures.

C) buying gold futures.

D) selling Treasury bond futures and buying S&P 500 Index futures.

10. The value of a euro futures contract will go up when

A) European interest rates go down.

B) interest rates go down.

C) the dollar strengthens against the euro.

D) the dollar weakens against the euro.